- Further selling takes the indices to next potential support.
- Beige Book shows most regions holding their ground, but we doubt it reflects reality: holding their ground as the economic data weakens from weakness?
- “Frustratingly slow” recovery for Bernanke is nothing to be surprised at.
- OPEC fails to agree to production hikes, but Saudi and three others say they will provide any oil that is needed. The ‘official’ OPEC is going through its death throes.
- March Japan low becomes a target in the new base, but likely a significant bounce before then.
- After hours news from TXN sparks further selling, and after six downside sessions another weak open could finally reverse to an oversold bounce.

MARKET SUMMARY

Six straight downside sessions on SP500 puts the market rather oversold near term.

Stocks managed to close lower yet again, 6 straight for SP500 and 5 of 6 for NASDAQ. Growth took the body blows with significant losses on NASDAQ (-0.97%), SP600 (-1.1%), and SOX (-2.08%), understandable if the economy is heading still lower versus the Fed’s and Administration’s ‘transitory’ slow down that will surely see green pastures, flowing milk and honey, a chicken in every pot, a GM Volt in every garage, and green energy as far as the eye can see in no time at all.

Indeed the Fed Beige Book noted the majority of regions (7) were steady, 4 slower, and 1 (Dallas) improving. Throw out Texas; it is the aberration with its business friendly environment and Tenth Amendment toting governor.  Even its Fed President out of Dallas is a shoot from the hip kind of guy who talks pretty darn straight.  He even came out and said that the Fed should not do anything further in terms of stimulus.  Anyway, in sum the Beige Book, despite the economic data, sees things holding up just fine.

You can take that Beige Book report to the bank, right?  Take it along with your 20% less valuable dollars.  You can also look at what the economic data is showing and understand where the Fed is coming from: it is dancing with the Administration’s weak dollar, export nation desires. What the Fed reports as improvement is in those same areas: those companies that gear their products for shipment to overseas markets.  As discussed before, that does not make the US the strong economy it has always been, an economy that creates wealth for individuals and upside social mobility through its small businesses.  Instead it is a big multinational corporation economy, just as Europe, where large corporations dominate the economy.  These same companies are STILL shedding jobs as we heard even as late as last week.

Is there any wonder why there are no jobs???  The only companies really benefitting from the stimulus and this economy are those that are still cutting jobs. Doesn’t take an economics Nobel Prize, PhD, Masters, or even an undergraduate degree to figure that out. Just pick up a history textbook and read about government actions and policies in the 1930′s and in the 1970′s.  It is no wonder Bernanke on Tuesday described the ‘recovery’ as “frustratingly slow.” Of COURSE it is. His and the Administration’s policies are exactly the type sure to create slow recoveries as in the 1930′s and the 1970′s. Why does he expect a different result with the same surge in regulation, inflation, dollar weakness, commodities, and unemployment among other factors of those periods?  As Einstein said, the definition of insanity is doing the same thing over and over and expecting different results.

What Bernanke is doing is a twist on those two periods.  Unlike the 1930′s he is flooding the world with liquidity.  That is his answer to the ills of the thirties.  Unfortunately, the Administration is adopting the same fiscal policies, i.e. massive increases in government spending, entitlements, and thus size as it did in the thirties, counteracting Bernanke’s gambit.  Moreover, the situation is now very much ‘That 70′s Economy’ with high unemployment, a slowing, stagnant economy (1.8% GDP and heading lower), spiking commodities prices, and oh yes, inflation (if you add back in housing prices that have tanked, just putting housing at normal levels, and inflation spikes).  On top of that, the country now has $14T in ‘official’ debt, $4T added the past two years, and the Administration wants another $2.4T in the next year.  Officially you can say there is anywhere from $24T to $60T in debt if you count entitlements.

Okay, I digressed.  Had to say it.  These are tough times and I fear worse times are coming.

Stocks started lower, tried a modest bounce into midmorning, then stepped back down to session lows in the afternoon with closes near session lows.  More volume (meaning some more stock dumping) left NASDAQ at next support, the Dow still at the bottom of its range, and the SP500 30 points off its March, Japan-induced low for the year. 

THURSDAY

Initial jobless claims are the big news for the morning in terms of economic data.  Eight in a row?  It is expected now.  In addition, however, there is the TXN lowered guidance after hours and warnings from other companies as well.

CIEN warned.  ANF said its Q2 would be in line; it says this is what it said when it last spoke but that is nonsense. The stock exploded higher in early April on its outlook. TXN lowered its guidance after hours and it is getting slaughtered. SPY, QQQ futures were down as well.

As noted above, SP500 peeled further away from its trading range.  NASDAQ sold hard but is at its next support level.  And there is DJ30 that still looks as if it wants to hold support at the bottom of its range.

The recent action looks and sounds like carnage and it is certainly not good for the near term. The ranges are more or less broken and more downside is likely. After 6 down sessions, however, an oversold bounce is coming soon. With the TXN warning, some more selling early can lead to a reversal for the oversold bounce as discussed above.  After that, however, SP500 heads toward the March low hit just after the Japan tsunami (1249, 30 points away). Good point to hold and bounce and rally much sharper to form the right shoulder of a head and shoulders at the apex of that bounce (matching the February peak that would be the left shoulder). Bigger patterns take longer to develop and that allows you to play both sides which is what we of course intend to do.

Back to the near term. An oversold bounce is likely and it would behoove you to use that as an exit point for the upside as they bounce off of support and rally.  When the bounce fizzles, sell them and any short term upside plays made to specifically play the bounce. When exiting those plays start taking more downside for what is potentially the test of the March low. If it gets there, sell the downside plays and turn again to play the bounce higher that could form the right shoulder as discussed above. 

That action should take the market through the summer. Then a selloff in September and October sets up a rally to the end of the year. After that, if the economy continues to sag the resulting rollover could be quite dramatic. How is that for bigger picture planning?  All sounds official, but that is just the story that seems to fit.  There are other scenarios that can be made.  We just do what we normally do, i.e. take it where the market goes.  With the economy and the technical patterns, this seems very likely to us.

For tomorrow, with the TXN news after hours and the reaction in futures, the market could start lower, sell further, and then reverse the oversold condition. That means we would take gain on the SPY, QID, and other shorts, flip to some upside SSO, SPY, CRM and the like that can move rapidly on a relief bounce.

As an aside, a subscriber sent me the script for ‘Open Range’ starring Costner and Duval; could be seeing some quotes from that one soon.